IRS extends temporary nondiscrimination relief for closed defined benefit plans

Tax Hot Topics newsletterThe IRS issued Notice 2018-69 to extend the temporary nondiscrimination relief for closed defined benefit plans as provided in Notice 2014-5. Relief is available for plan years beginning before 2020, provided the conditions of Notice 2014-5 are satisfied.

Closed defined benefits pension plans are pension plans that provide ongoing benefit accruals, but have been amended to limit those accruals to some or all employees who participated in the plan as of a specified date. The employees who are not eligible for ongoing benefit accruals under the plan are often covered by a defined contribution plan maintained by the employer. In many cases, the defined benefit plan covers a higher number of highly compensated employees than the defined contribution plan, making it difficult or impossible for the defined benefit plan to satisfy the coverage and nondiscrimination requirements. However, the defined benefit plan can often comply with the requirements if the defined benefit and the defined contribution plans are tested together as if they were one defined benefit plan, with the contributions in the defined contribution plan converted to equivalent benefits for testing purposes (aggregated plan testing). 

For plan years beginning before 2016, Notice 2014-5 provided temporary nondiscrimination relief for certain closed defined benefit plans. It permitted a defined benefit or defined contribution plan that includes a closed defined benefit plan to satisfy the nondiscrimination-in-amount requirement on the basis of equivalent benefits, provided that the defined benefit plan was closed by an amendment adopted before Dec. 13, 2013, and certain other conditions as prescribed in the notice were met.

Notice 2015-28 extended the temporary nondiscrimination relief provided in Notice 2014-5 to include plan years beginning before 2019, provided the other requirements of Notice 2014-5 were satisfied. Notice 2015-25 also clarified that the remaining provisions of the Section 401(a)(4) nondiscrimination regulations continued to apply during the period for which the extension applied.

Jeff Martin
Washington National Tax Office
T +1 202 521 1526

Keith Mong
Managing Director
Washington National Tax Office
T +1 202 521 1554

James Sanchez
Senior Associate
Washington National Tax Office
T +1 202 861 4107

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